ACIT Circle 37 (1), V. Escorts Hospital and Research Centre Ltd,

ITA 684/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2093 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-07-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 21-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEVINDER K CHAND
• Keywords: Depreciation; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT AN D SHRI D.R. SINGH : JUDICIAL MEMBER ITA NO. 684 & 2745/DEL/08 ASSTT. YR: 2004-05 & 2003-04 ACIT CIRCLE 37(1), VS. M/S ESCORTS HOSPITAL & RES EARCH CENTRE NEW DELHI. LTD. 11, SCINDIA HOUSE, CONNAUGHT CI RCUS, NEW DELHI. PAN/ GIR NO. AAACE2711M ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI DEVINDER K CHAND DR RESPONDENT BY : SHRI PRADEEP DINODIA O R D E R PER G.E. VEERABHADRAPPA, V.P: THESE APPEALS, FILED BY THE REVENUE, ARISE OUT OF SEPARATE ORDERS OF THE CIT(APPEALS)-XXVIII, NEW DELHI, FOR THE ASSESSMENT YEARS 2003-04 & 2004-05. SINCE COMMON ISSUES ARE INVOLVED FOR ADJUD ICATION IN BOTH THE APPEALS, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS ORDER. 2. THE FIRST COMMON GROUND IN BOTH THESE APPEALS RE LATES TO DISALLOWANCE OF 50% OF THE AMOUNT REIMBURSED BY THE ASSESSEE TO THE HOLDING COMPANY. M/S ESCORTS LTD. IS A HOLDING COMPANY. IT INCURRED CERTAIN EXPENSES FOR MAINTENANCE OF DISPENSARY AND FOR PROVIDING MEDICAL BENEFIT IN THE VILLAGE LOCATED IN THE VICINITY OF FARIDABAD. THE EXPENDITU RE RELATING TO THESE DISPENSARIES WAS INCURRED BY THE HOLDING COMPANY A ND WAS ALLOCATED TO THE HOSPITALS, WHICH ARE SUBSIDIARIES OF M/S ESCORTS LT D. THE EXPENDITURE IS ON ITA 684 & 2745/DEL/08 M/S ESCORTS HOSPITAL & RESEARCH CENTRE LTD. 2 ACCOUNT OF SALARY, BONUS, STAFF WELFARE ETC. THESE EXPENSES WERE BEING DEBITED BY THE HOLDING COMPANY SINCE THE INCEPTION OF THE HOSPITALS, BEING RUN BY THE SUBSIDIARY COMPANIES AND THE SAME EXPENS ES WERE INCURRED EVEN IN THESE TWO YEARS. THE ASSESSING OFFICER PICKED UP THOSE EXPENSES FOR DISALLOWANCE BY APPLYING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. IN DOING SO THE ASSESSING OFFICER REJECTED THE CONTENT ION OF THE ASSESSEE THAT NO SUCH DISALLOWANCE HAD BEEN MADE IN THE PAST ON SIMI LAR EXPENSES INCURRED BY THE ASSESSEE. 3. IN APPEAL, THE CIT(APPEALS) OBSERVED THAT THE RE CORD DID NOT SHOW HOW THE EXPENDITURE CLAIMED WAS EXCESSIVE OR UNREA SONABLE, HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES OR FACILIT IES FOR WHICH THE PAYMENT HAD BEEN MADE. ACCORDING TO HIM, PROVISIONS OF SECT ION 40A(2)(B) WERE NOT ATTRACTED. ACCORDINGLY, THE CIT(A) HELD THAT THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER WAS UNJUSTIFIED AND DELETED THE SAME. 4. THE LEARNED DR STRONGLY SUPPORTED THE FINDINGS O F THE ASSESSING OFFICER AND CONTENDED THAT THE DISALLOWANCE WAS TO BE RESTORED FOR THE SAME REASONS. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, FILED DETAILS OF EXPENDITURE IN THE PAPER BOOK FILED FOR THESE TWO Y EARS AND POINTED OUT THAT IN THE EARLIER YEARS SIMILAR EXPENSES WERE INCURRED AND NO DISALLOWANCE HAD BEEN MADE. IN SUPPORT THE LEARNED COUNSEL PLACED RE LIANCE ON THE RATIO OF DECISION OF SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321(SC); AND THAT OF DELHI HIGH COUR T IN THE CASE OF CWT VS. ALLIED FINANCE P. LTD. (2007) 289 ITR 318 (DEL. ). THE LEARNED COUNSEL CONTENDED THAT THE DEPARTURE OF TREATMENT BY THE R EVENUE ON THE SAME SET OF FACTS IS NOT JUSTIFIED FOR THE ASSESSMENT YEARS IN QUESTION AND THE ASSESSING OFFICER HAS NOT MADE ANY EXERCISE TO INDICATE HOW THE EXPENSES ARE ITA 684 & 2745/DEL/08 M/S ESCORTS HOSPITAL & RESEARCH CENTRE LTD. 3 UNREASONABLE OR EXCESSIVE, HAVING REGARD TO THE LEG ITIMATE BUSINESS NEEDS OF THE ASSESSEE. 6. WE HAVE CAREFULLY GONE THROUGH THE RECORDS INCLU DING THE NATURE OF THE EXPENSES INCURRED BY THE ASSESSEE. SIMILAR EXPE NSES WERE INCURRED FROM INCEPTION BY THE ASSESSEE COMPANY AND UP TO THE ASS ESSMENT YEAR 2002-03 NO DISALLOWANCE HAS BEEN MADE, INDICATING THAT ON T HE SAME SET OF FACTS THE REVENUE ACCEPTED THAT THE EXPENDITURE INCURRED BY IT ARE THE LEGITIMATE BUSINESS REQUIREMENT. WITHOUT ANY CONTRARY MATERIAL , IT IS NOT OPEN TO THE REVENUE TO CHANGE THE STAND FOR THESE TWO YEARS. A PART FROM THIS, THE ASSESSING OFFICER HAS NOT EVEN MADE ANY EXERCISE OR PROVIDED SUFFICIENT MATERIAL TO SHOW HOW THE EXPENDITURE IN QUESTION AR E EITHER EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE LEGITIMATE BUSIN ESS REQUIREMENT OF THE ASSESSEE. THE DEPARTMENT HAVING ACCEPTED SUCH LEGIT IMATE BUSINESS REQUIREMENT IN THE EARLIER YEARS, CANNOT ALL OF S UDDEN TURN AROUND OR SAY THAT THE EXPENSES HAVE BECOME UNREASONABLE DURING T HE YEARS IN QUESTION WITHOUT BRINGING ON RECORD ANY CHANGE IN THE CIRCUM STANCES OF THE CASE. FOLLOWING THE PRINCIPLE LAID DOWN BY THE SUPREME CO URT IN THE CASE OF RADHASOAMI SATSANG (SUPRA), AS WELL AS BY THE DELHI HIGH COURT IN THE CASE OF ALLIED FINANCE P. LTD. (SUPRA), WE ACCEPT THE S TAND OF THE ASSESSEE AND UPHOLD THE ORDER OF THE CIT(A) ON THE ISSUE IN QUES TION FOR BOTH THE ASSESSMENT YEARS IN QUESTION. 7. THE NEXT DISPUTE IN BOTH THESE APPEALS RELATES T O DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF REPAIR & MAINTENANCE BY H OLDING THE SAME TO BE CAPITAL IN NATURE. 8. FROM THE DETAILS OF THE REPAIRS AND MAINTENANCE EXPENSE CLAIMED BY THE ASSESSEE, THE ASSESSING OFFICER FOR A.Y. 2003-0 4 HAS SEGREGATED THE FOLLOWING EXPENDITURE: ITA 684 & 2745/DEL/08 M/S ESCORTS HOSPITAL & RESEARCH CENTRE LTD. 4 1. SPARE FOR TOSHIBA COLOUR DOPPLER 1,73,998 2. REPLACE OF SCAN HEAD & POWER SUPP 1,91,980 3. SPARES FOR BLOOD ANALYZER MACHINE 1,10,880 4. SPARE FOR ECHO SCAN 55,000 5. SPARE FOR COLOUR DOPPLER 92,337 6. SPARE FOR REFURBISHING OF K-1000 59,956 TOTAL: 6,84,151 9. THE ASSESSING OFFICER TREATED THE AFORESAID EXPE NDITURE OF RS. 6,84,151/- AS CAPITAL IN NATURE BY NOT ACCEPTING T HE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE WAS IN THE REVENUE FIELD. THE ASSE SSING OFFICER, APART FROM DISALLOWING THE SAID EXPENDITURE BY TREATING THE SA ME TO BE CAPITAL IN NATURE HAS ALLOWED 10% TOWARDS DEPRECIATION. 10. SIMILAR EXERCISE HAS BEEN MADE IN RESPECT OF TH E FOLLOWING EXPENDITURE FOR A.Y. 2004-05: 1. COMPACT OPERATING RENO SCOPE FOR OT RS. 2,51,3 78/- 2. SPARES FOR PCB X-RAY MACHINE RS. 2,20,000/- 3. SPARES OF SIGHT SAVING DEVICES RS. 1,27,500/- 4. WOOD WORD FOR LAB RS. 1,15,338/- 5. WOOD WORK RS. 1,31,027/- TOTAL: RS. 8,45,243/- 11. THE COMMON CONTENTION FOR BOTH THE YEARS BY THE ASSESSEE IS THAT THE EXPENDITURE IN QUESTION ARE REVENUE IN NATURE. THI S CONTENTION WAS ACCEPTED BY THE CIT(APPEALS) AND THE REVENUE IS IN AGGRIEVE D. 12. THE LEARNED DR STRONGLY RELIED UPON THE FINDING S IN THE ASSESSMENT ORDER AND PLEADED THAT THE EXPENDITURE IN QUESTION ARE CAPITAL IN NATURE. WHILE THE ASSESSEES REPRESENTATIVE STRONGLY CONTEN DED THE SAME TO BE PURELY REPAIRS AND MAINTENANCE EXPENSES, NOT INVOLVING THE ACQUISITION OF ANY ASSET OF A SIGNIFICANT NATURE. THEY ARE JUST EXPENDITURE IN RESPECT OF REPLACEMENT OF OLD AND WORN OUT PARTS AND REPLACEMENT OF THE SAME WITH A NEW AND SOPHISTICATED. THE EXPENDITURE HAVE BEEN INCURRED O NLY TO PRESERVE AND ITA 684 & 2745/DEL/08 M/S ESCORTS HOSPITAL & RESEARCH CENTRE LTD. 5 MAINTAIN THE ALREADY EXISTING ASSETS AND THE OBJECT WAS NOT TO ACQUIRE OR OBTAIN A NEW ASSET OR BENEFIT OF ENDURING NATURE. T HE DETAILS OF THESE EXPENSES ARE ALSO IN THE PAPER BOOK FILED BEFORE US . 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ON AND GONE THROUGH THE RECORDS. WE ARE UNABLE TO FIND ANY MERIT IN THI S APPEAL, HAVING REGARD TO THE DETAILS FURNISHED BY THE ASSESSEE. THE EXPENDIT URE INCURRED ARE IN RESPECT OF SPARE PARTS FOR MAINTAINING THE EXISTING ITEMS O F MACHINERY. THEY HAVE NOT REPLACED THE MACHINERIES THEMSELVES. THEY ARE R EPAIRS AND ARE IN THE NATURE OF RENEWAL TO THE EXISTING ITEMS FORMING P ART OF THE PLANT AND MACHINERY. IN OUR VIEW, THE LEARNED CIT(A) HAS CORR ECTLY DECIDED THE ISSUE AND HAS REASONS TO HOLD THEM TO BE REVENUE EXPENSE S. WE DO NOT HAVE ANY REASONS TO DIFFER WITH HIM ON THIS ISSUE. 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE R EVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 11-12-2009. ( D.R. SINGH ) (G.E.VEERA BHADRAPPA) JUDICIAL MEMBER VICE PRESIDENT DATED: 11-12-2009 MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 684 & 2745/DEL/08 M/S ESCORTS HOSPITAL & RESEARCH CENTRE LTD. 6